November 10, 1999

Program's goal is more homeowners and fewer drivers

By SAM BENNETT
Journal Staff reporter

The Fannie Mae Foundation and the city of Seattle are teaming up to get people out of their cars and into homes.

Mayor Paul Schell on Tuesday introduced the Location Efficient Mortgage Initiative, a program that increases homebuyers' purchasing power in return for abandoning their cars and using mass transit. The pilot program, the first of its kind in the U.S., soon will be launched in Los Angeles, San Francisco and Chicago.

"We're in the American Dream business," said Heyward Watson, director of Fannie Mae's Puget Sound office. It's a well-known fact, however, that attaining that dream in Seattle and King County has become increasingly more difficult.

Since 1990, the median cost of a house in Seattle has risen from $138,000 to $223,000, and countywide the median price has increased from $140,000 to $215,000. According to county statistics released Tuesday, homebuyers making 80 percent of median income -- about $48,560 for a two-person household -- could afford only 8.5 percent of the single-family homes available in the county last spring.

To give Seattle homebuyers more leverage, the Location Efficient Mortgage Initiative rewards homebuyers with larger loans than they normally would qualify for and lower downpayments. In return, Fannie Mae and the city will request that participants own one car or less per household and live within a quarter mile of a bus line or half a mile from a train or light rail system. The initiative will also offer discounted annual bus passes for one member of the household.

"We want to encourage home ownership and fewer trips in the car," Schell said. "As Seattle's housing prices escalate, we need to be creative to encourage affordability."

The program works by assigning values to each Seattle home based on residential density, amenities such as shopping, and access to public transportation. Homes in neighborhoods with fewer amenities and less access to public transportation would be assigned a lower "location efficient value" than areas such as Belltown or the University District, which have more amenities and greater transportation access. The program would also apply to condominiums.

A family earning $60,000 a year would qualify, under traditional mortgage underwriting guidelines, for a $143,000 home. But if the family gives up one car, their annual savings would be $3,200, according to a city-commissioned study.

Because of that savings, Continental Savings Bank would extend the family's credit by $17,800 toward the purchase price of a $160,700 home. The study says that expenses that would normally go toward a vehicle can be re-directed toward the mortgage.

For Jackie Peyton, the first person to be approved for the program, buying a home or condo is now within reach.

"I was relieved because as I was looking at the prices I realized I would probably have to move out of the city," she said. "With this new loan, I have more buying power in the city."

Fannie Mae, a national source of financing for home mortgages, will work with Continental to arrange the loans. Continental will be the exclusive lender for the Seattle program.

One initial obstacle for the program may emerge from last week's passage of Initiative 695. The county says it must cut bus operations by 30 percent in the next two years to deal with the loss of tax revenue from the initiative that slashed car tab fees. But Schell said he is confident that the new program will not be adversely affected by the proposed cuts in service.

"In the long term, I am confident we will have a very good light rail system," he said. "Congestion is the No. 1 issue in the city."

Homeownership is also a critical issue, Schell said. The county has a 59 percent rate of homeownership, a figure that has stayed the same for nine years. In Seattle, the homeownership rate is even lower, at 48 percent -- well below the national average of 66 percent.

"I do know that there is a pent-up demand for people to be able to qualify for a loan to buy a house," said Cynthia Parker, director of Seattle's Office of Housing. "This is a way for us to get more homeownership in Seattle."

For homebuyers like Peyton, participating in the program means foregoing the headaches of commuting by either walking to work from a downtown condo or taking a bus from a nearby neigborhood.

"I'm getting over the idea of living in the suburbs because I can get more house out there," she said. "Sitting, idling in traffic in a car takes its toll."